Sovereign Gold Bonds – Features, Benefits & Taxation

Gold has always been a popular choice of investment in India. In fact, India is among the largest consumers of gold globally. This is not only because owning gold is a symbol of prosperity, but also because it is a great hedge against inflation.

But managing physical gold is risky. An easier and smarter way to hold gold is by investing in Sovereign Gold Bonds.

Simply put, Sovereign Gold Bonds or SGBs are government securities denominated in grams of gold. It acts as a substitute for investment in physical gold. The gold bonds are issued by the Reserve Bank of India on behalf of the Government of India. So instead of investing in physical gold, you can invest in Sovereign Gold Bonds and enjoy the same benefits without the hassle of handling physical gold.

In this article, we’ll cover:

  • Basics of Sovereign Gold Bonds
  • Features of Sovereign Gold Bonds
  • Benefits of Sovereign Gold Bonds
  • Taxation on Sovereign Gold Bonds

You can invest in Sovereign Gold Bonds with PL. Click here to know more.

Basics of Sovereign Gold Bonds

In each financial year, the RBI issues the Sovereign Gold Bonds in multiple tranches. The open and close date for subscription, as well as the issue price are announced by the RBI. Note that the gold bonds are denominated in multiples of gram(s) of gold, with the basic unit of 1 gram. During the subscription period, investors can invest in these bonds and redeem it after the maturity of the scheme.

The tenor of the SGBs has been fixed at 8 years. But after the 5th year, investors have the option to exit. The redemption takes place at the prevailing gold price.

As per guidelines, investors can apply for the gold bonds through the SEBI authorized trading members and financial advisors of NSE and other channels specified by the RBI. To check the latest update on SGBs, click here.

 Features of Sovereign Gold Bonds

With the basics cleared, let us now take a look at some of the key features of Sovereign Gold Bonds.

Subscription: As per regulations, all individuals, HUFs, Trusts, Universities and Charitable Institutions are allowed to invest in SGBs. The minimum investment limit is 1 gm, while the maximum investment limit for Individuals and HUFs is 4 kg; and 20 kg for Trusts per financial year.

Duration: The tenor of the gold bonds will be for a period of 8 years, and an exit option can be availed after 5 years of the date of issue. The repayment will be made on the next interest payment date.

Issue & Redemption Price: There is also a set process on how the issue and redemption price are determined. For the issue price, a simple average of the closing price of gold (999 purity) published by the India Bullion and Jewellers Association Limited are considered. The time period used to arrive at this average is the last 3 business days of the week preceding the subscription period. The same process is followed to arrive at the redemption price.

Fixed interest: SGB schemes enables investors to earn a fixed interest rate of 2.5% per annum. The interest is payable semi-annually on the nominal value.

Thus, as an investor in a SGB scheme, you can benefit from the potential appreciation in the gold price during the tenor of the scheme as also earn fixed interest income on your investment.

Let’s look more closely at all the benefits of investing in Sovereign Gold Bonds.

Benefits of Sovereign Gold Bonds

Investing in gold bonds brings with it the following benefits:

  • Assurance of purity: This is one of the biggest advantages of investing in gold, as the bond prices are linked to price of gold of 999 purity (24 carat) published by IBJA.
  • Sovereign guarantee: Investors also benefit from the Sovereign guarantee on the redemption amount and the interest amount.
  • Assured interest: By investing in SGBs, investors can get guaranteed 2.5% assured interest per annum.
  • Asset appreciation: When you redeem your investment on maturity, the units are redeemed at the prevailing gold price. The potential returns can be higher than actual return on gold.
  • Diversification: Investing in SGB is a great way to diversify your portfolio and minimize risk as gold has low corelation with other asset classes.
  • Hassle & Risk-free: Investing in SGB is the safest way to buy and store gold, with no purity risk
  • Better than physical gold: While purchasing physical gold, you need to pay GST. Whereas, SGBs are exempt from GST. This, coupled with the ease of storage and lower risk makes it a better investment than physical gold!

You can invest in SGBs with PL by writing to . Click here to learn more.

Taxation on Sovereign Gold Bonds

Before investing in gold bonds, it is important to understand the tax that is levied on this investment.

According to the latest guidelines, the interest on Gold Bonds will be taxable as per the investor’s tax bracket. Since TDS isn’t applicable on SGBs, investors need to show this income while filing the IT returns and pay the tax accordingly.

Coming to capital gains tax. For redemption that occurs after the full tenor i.e. 8 years, capital gains tax will not be levied. Additionally, the indexation benefits will be provided to long term capital gains arising to any person on transfer of the bond.

In case of early redemption, after the 5th year, capital gains will be taxable.

All in all, investing in Sovereign Gold Bonds are a tax-efficient way of investing and earning potentially higher returns in the long run.

To invest in Sovereign Gold Bonds with PL, write to Visit for more details.

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